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The Client: A privately held internet services provider (ISP) was seeking to grow through acquisitions as the Dotcom bubble was approaching its end. The owners of the firm believed that they had created a business with significant value, and had a sizable portion of their net worth tied up in their investment in the firm. They very much wanted to find away to unlock the wealth that was represented by this investment.

The Client had unsuccessfully attempted to go public earlier. However, since that had not worked out, the Client was now seeking to become an acquisition target by a larger firm. The majority shareholders of the Client felt that their firm was too small to ultimately survive in a rapidly growing and changing industry. Additionally, they were concerned that their firm was not large enough to be an attractive acquisition target for larger competitors within the industry. As a result they were worried that if they did not achieve their goal of being an attractive acquisition target, they could loose their investment in their company

The management and shareholders of the Client lacked the necessary skills and expertise to implement their strategy. The Client contacted Coral Capital to advise it on how best to implement their strategy and achieve their goal.

The Tasks: The project consisted of three primary tasks. The first being to perform an industry wide valuation analysis. The second was to determine the size and with what characteristics a company would become an attractive acquisition target to a major player in the industry. The third being to perform an acquisition search on behalf of our client in order to find potential similar companies to acquire. The primary tasks for the acquisition search were to locate, contact, solicit interest, and perform initial due diligence on potential acquisition targets.

Issues: This was during the end of the Dotcom bubble era. There were significant challenges that included unreasonably high valuation expectations by sellers; and limited acquisition capital on the part of the buyer. Additionally, in the early years of the internet, the amount of information available online was severely limited in comparison to today’s level. This was further complicated by the high price and limited number of information sources from which to construct a database of potential acquisition targets.

Secondary Issues: The client needed to acquire the smaller companies at a lower valuation than it would be able to sell the larger assembled company for.

Plan of Action: Coral Capital Partners conducted an extensive examination and research on the publicly traded internet service providers. This research provided valuable insight into the companies within the industry, trends within the industry, and what was important as the industry grew and developed. This allowed Coral Capital to develop to develop a strategy of acquiring companies within a targeted size range in order ensure our client retained management and voting control over the assembled company; and for our Client to become a suitable acquisition target with as few acquisitions as necessary and in as short of time as possible.

Following the completion of our research of the publicly traded competitors to our client, we conducted research on the sources of available information from which we could construct a database of potential acquisition targets. Based upon this research, we were able to construct a custom database of approximately 3,000 potential acquisition targets within the United States. Coral Capital utilized the knowledge obtained from its industry research to focus it initial efforts on the companies we felt would be the best acquisition targets.

As within a lot of industries, there is high value placed on maintaining secrecy when it comes to mergers and acquisitions. The sellers typically do not like it if their competitors or customers know they might be for sale. Buyers typically do not like to let others know that they active acquirers for fear of having yo pay a higher price for the companies that they buy. As a result, it was very important that Coral Capital be able to contact prospective acquisition targets without disclosing the name of the potential buyer. Coral Capital developed a plan to contact prospective acquisition targets in a manner designed to generate interest in selling the business without having to initially disclose to the sellers who the buyers were.

Following the initial indications of interest, Coral Capital would screen the potential sellers to make sure they fit the proper acquisition criteria, and conduct initial due diligence on those firms before recommending them to the client for review.

Results: The industry research and the acquisition search was suscsfull. The industry research provided us with valuable insight that allowed our initial round of prospect company contacts to produce roughly a two dozen potential sellers. This pool of potential sellers was narrowed to approximately six (6) potential acquisition targets. Our Client acquired three (3) of the acquisition targets identified and screened as a result of our acquisition search efforts.

Our Client grew in size as a result of these acquisitions. Within less than two years of completing its last acquisition, our Client was acquired by a major competitor within the industry. The acquisition of our Client by a major competitor within the industry allowed the investors in our Client to realize the wealth that had been locked up in the firm.